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On the Non‐Contractual Nature of Donor–Recipient Interaction in Development Assistance

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  • S. Mansoob Murshed

Abstract

The author analyzes three issues in strategic donor–recipient interaction motivated by the complexity of the rationale underlying aid. The first is when we have several principals with conflicting objectives. Any one principal cannot offer high powered incentives to the agent to carry out his or her designated task. The second is to do with the fact that effort associated with ensuring aid effectiveness may concern both principal and agent, the optimal solution to which requires cooperative behavior that is difficult to design. Consequently, the contractual type principal–agent relationship between donors and recipients is inappropriate. We need to consider models that signal recipient quality or commitment to reform. Thus, thirdly, a simple model of signaling with commitment problems is presented, along with extensions to multiple types of agent and time periods, as well as possible solutions involving mechanism design.

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  • S. Mansoob Murshed, 2009. "On the Non‐Contractual Nature of Donor–Recipient Interaction in Development Assistance," Review of Development Economics, Wiley Blackwell, vol. 13(3), pages 416-428, August.
    • Handle: RePEc:bla:rdevec:v:13:y:2009:i:3:p:416-428
    DOI: 10.1111/j.1467-9361.2009.00499.x
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    Cited by:

    1. Murshed, S.M., 2020. "Populist politics and pandemics: some simple analytics," ISS Working Papers - General Series 131100, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Dzhumashev, Ratbek & Hailemariam, Abebe, 2021. "Foreign aid and the quality of economic institutions," European Journal of Political Economy, Elsevier, vol. 68(C).

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